Retirement Savings: Caution Against Premature Liquidation

Liquidating retirement assets to buy a house may hinder long-term wealth growth, especially with expected income increase.

### The Financial Impact of Cashing Out a 457b for a House Purchase
* 💰  Cashing out a 457b to pay cash for a house might feel great initially, but it comes with the downside of **paying income taxes** and **losing the potential growth of the invested assets**.
* 🏦 " How often do you hear us talking about reaching the boiling point of getting to your **first $100,000** and then watching that build to **two, three, and it gets faster and faster as your assets build up**.
* 📈  Cashing out retirement assets can significantly hinder the **compounding effect** and the **long-term growth potential** of the portfolio.
* 🏠  While it's important to consider short-term goals like buying a house, it's equally crucial to evaluate the **long-term financial implications of liquidating retirement savings**.
* 💸 " Once I pay for that house in cash and I have it paid off, I **cannot eat said house**, right?"
* 📉  Focusing solely on short-term objectives without aligning them with **long-term financial goals** can lead to **detrimental financial consequences**.
* 📊  It's advisable to consult with a financial professional to assess the **opportunity cost** and ensure that financial decisions are in line with the **overarching objectives**.

[Music] All right, let's move on to Point Chaser's question. Say that again. Points, points, Chaser. Credit card guy. I get, I get you. He says, We are buying a house. We can cash out a 457b and pay cash for the house. It is a penalty-free withdrawal, but we will be taxed. Our income is expected to double in the next few years and want to liquidate. Is this a bad idea? Can I, I want to set the ground rules M to be rich, you have a strong income. To be wealthy, you have a strong net worth statement that the assets keep working for you. When somebody says, 'I can pay cash,' that by cashing out my retirement assets in the moment, that might feel great, but what I'm worried is, is that how often do you hear us talking about reaching the boiling point of getting to your first $100,000 and then watching that build to two, three, and it gets faster and faster as your assets build up. If you all of a sudden pull out all

that 457 money you pay income taxes. By the way, that's going to yank a big portion of it just paying taxes. You've now taking yourself back on those Army of dollars working for you, and I just worry about that. That might, um, especially, I don't know how old this person is. They're under 45 years of age. I mean the power of your army of dollar bills. I would encourage you to go to money.com resources, play around with our wealth multiplier tool, and you'll see that there is just, there's a lot of opportunity. There's get wealthy behaviors, and there's stay wealthy behaviors. Don't start doing stay wealthy and drisking behaviors like that when you haven't even reached get wealthy. Yeah, one of the things that I want to dive into at the very end of your question. Rebe, correct me if I got this wrong. I think Point St hey, I'm expecting my income to double the next a few years, and I really want to liquidate. That's the part that I don't understand, and I

think a lot of people have this idea that okay, as I move closer to financial independence, I'm going to build and save and invest, and build and save and invest, and build and save and invest, and the day that I retire, I just sell everything, I take all that cash, and I go put it in the folders can out in the backyard, and that's not actually the way that it works. And so one of the things I want to dive into with you, Point Chaser, is why are you under the mindset that you want to liquidate? What is it that's making you want to liquidate your portfolio? Because in our experience, even folks who go into the decumulation phase, while their risk tolerance may have changed, while the allocation of their portfolio may look different, there's still some portion of their portfolio that has to provide for them for the next 10, 20, 30, sometimes even as many as 40 years into the future. So it likely makes sense that there's still going to be an invested, a risk on invested portion of their

portfolio. I don't understand where you're coming from when you're talking about maybe liquidating, and what I worry is you're only focusing so much on the short term. Hey, we want to buy a house. I've got this 457. I can get into it penalty-free. I still got to pay taxes, but I can pay cash. I think you really need to sit down with someone to walk you through the opportunity cost of doing that because once I pay for that cash and I have that, once I pay for that house in cash and I have it paid off, I cannot eat said house, right? Like that's not going to pay the utilities, that's not going to be able to put food on the table, that's not going to be able to provide for my living expenses. So you really need to understand how much capital do you need inside of your ecosystem to be able to do those things, and if you're planning on your income doubling in a few years, it sounds to me like you're even still in the accumulation phase, like you're

still building up working towards your highest income-earning years. I don't know that I love this idea of thinking about liquidation and going to cash. It doesn't add up to me. So I think if I were you, I would sit down, I'd pause, and say, Okay, what are the goals I'm ultimately trying to accomplish? And are the decisions I'm making today really moving me towards those goals, or in actuality, are they going to keep me further away from those ultimate end goals?

Is It a Bad Idea to Cash Out a 457b Penalty-Free to Pay for a House?

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The Risk of Cashing Out a 457b for a House Purchase

Cashing out a 457b for a house purchase may result in significant tax payments and loss of the potential growth of the assets.

Doubling income in the next few years and aiming to liquidate may not justify the risk of depleting the retirement fund.

It's important to focus on building wealth and consider the long-term impact before making such a decision.

The Misconception About Liquidating Investments Before Retirement

Many people believe they can simply liquidate all their investments and live off the cash in retirement, but this is not how it actually works.

Even in the decumulation phase, retirees still need a portion of their portfolio to provide for them for the next few decades.

The mindset of wanting to liquidate the entire portfolio before retirement is based on a misconception about financial planning for the future.

Considerations for Using Cash to Buy a House

Using cash to buy a house can have long-term financial implications that need to be carefully considered.

It's important to assess the opportunity cost of using that cash and to ensure that enough capital remains for living expenses.

Doubling income in a few years may indicate that the individual is still in the accumulation phase, further emphasizing the need for a comprehensive financial evaluation.

Reassessing Financial Goals for Long-Term Success

It's important to reevaluate decisions to ensure they align with long-term goals and not hinder progress.

Taking the time to pause and assess whether current actions are truly beneficial for the ultimate objectives is crucial.

Instead of focusing on short-term gains, it's essential to consider the impact of choices on long-term financial success.